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New York State threatens pharmaceutical companies for better prices

Under the New York law, everything plays off an annual spending growth cap.

The new rules are triggered if the combination of price increases and use of drugs is forecast to push spending to exceed that target. First, regulators will ask drugmakers seen as driving that spending to voluntarily offer rebates.

No specific drugs have yet been named, and it isn’t clear how they will be chosen.

“This policy will not affect the vast majority of drugs,” said Helgerson, adding that it will target “the manufacturers that attempt to use periods of patent protection to drive outrageous prices.”

Attorney John Shakow, who represents drug manufacturers, said his clients’ reaction is “mystification and concern,” in part because it is unclear how regulators will select which drugs or manufacturers to pursue for additional rebates.

“It seems prone to abuse, if they want to go after a manufacturer for political reasons or otherwise,” said Shakow, a partner at King & Spalding who specializes in drug price cases. “Laws that are this amorphous and nonspecific and vest so much discretion in regulatory authorities strike us as being ripe for challenge.”

Other laws already require drugmakers nationwide to give Medicaid programs their “best price” — equal to or less than what it is paid by private insurers. Most states, including New York, already seek supplemental rebates, often in exchange for priority placement on lists of which drugs can be dispensed.

But the new law goes further in seeking additional rebates on top of those.

If the targeted drugmakers balk at offering discounts, regulators are granted a range of options that ramp up pressure by requiring those uncomfortable reviews.

Regulators, for example, can refer specific drugs to an evaluation by the state’s Drug Utilization Review Board.

The board would recommend a target rebate. If the state could not get the drugmaker to agree to at least 75 percent of that rebate amount, other sanctions could apply. Prior authorization — meaning a doctor would have to get special permission to prescribe — could be placed on the drug. Advocates fear that could make access to needed medications more of a hurdle for patients.

The state could also require drugmakers to disclose how much was spent on research and marketing, what it charges for the drug in other countries and its average profit margin over a five-year period. Such “transparency” rules are strongly opposed by the drug industry, which says they don’t capture all the costs that go into drug development — and won’t help consumers. With a few exceptions, the industry has successfully fought efforts in various states to pass such legislation.

And, finally, the strongest enforcement mechanism would allow the state to bar some medications entirely, so long as they were not the only drug for a particular condition or treatment. It isn’t clear how that would square with other federal requirements.

If it all works according to plan, the state expects to save $55 million this fiscal year and $85 million the next under the law, Helgerson said.

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Kaiser Health News, a nonprofit health newsroom whose stories appear in news outlets nationwide, is an editorially independent part of the Kaiser Family Foundation.

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